Ahold Pressed To Sell Giant

Two investment funds with a significant stake in Amsterdam-based Royal Ahold NV yesterday called on the food retailer to sell off the once-locally-owned Giant Food, along with the rest of its ailing U.S. division.

In a statement, London-based Centaurus Capital Ltd. and New York firm Paulson & Co. said keeping Ahold's business together "diminishes shareholder value and limits the operating potential of the individual businesses." They estimated the move could increase Ahold's stock to more than nine euros, or about $11.45, per share. Ahold closed at $9.26 on the New York Stock Exchange yesterday.

Centaurus and Paulson together own about 6.4 percent of Ahold stock. The funds said they plan to enter into a "constructive dialogue" with Ahold and other shareholders. Two of the company's biggest investors, Brandes Investment Partners LP, with 13.7 percent, and Capital Research and Management, with 9 percent, declined to comment.

Ahold spokesman Walter Samuels said the company had not spoken with Centaurus or Paulson about the recommendations. He declined to elaborate.

"There is no dialogue," he said. "We don't comment on market rumors."

The investors' demand comes at a time when hedge funds and other activist investors have become increasingly forthright about demanding management and strategy changes. Disgruntled investors helped force the sale and breakup of the Knight Ridder newspaper chain and helped prompt new directions at Time Warner Inc. General Motors Corp. is exploring an alliance with Nissan and Renault after prompting from an outside investor.

Earlier this year, Centaurus and Paulson worked together to push Dutch industrial conglomerate Stork to sell itself to a private buyer, according to the Financial Times. The attempt proved unsuccessful, and Stork has abandoned its search, the newspaper said.

Ahold bought Giant Food in 1998 and merged it with its Massachusetts-based Stop & Shop division in 2004. It bought Columbia-based U.S. Foodservice, which supplies food to restaurants, hotels and other institutions, in 2000. Its U.S. holdings, which also include the Tops supermarket chain, account for roughly two-thirds of its business. Its European chains include grocer Albert Heijn, health and beauty retailer Etos and ICA Group.

Speculation that Ahold might sell its U.S. division -- or be taken over by a private equity group and split up -- has abounded for years. The company last month sold 46 low-performing Tops stores in Ohio, eliminating 3,800 jobs. Ahold officials said then that the sale bore no relation to the fate of its other U.S. chains.

But Ahold faces a tough battle, with rising gas prices weighing on consumers' minds. It is also caught between high-end grocers such as Whole Foods Market and discounters such as Wal-Mart that have eroded its market share.

Some analysts remain confident in the Giant chain, however. After a tour of stores, Marc de Speville of London-based Redburn Partners LLP wrote last month that "my negative view of Ahold's second-largest U.S. retail division was largely turned on its head." He said the company had become more competitive in pricing and more efficient, and credited the changes to store and upper-level management.

Earnings for the second quarter, released last week, showed comparable store sales at Tops down 4.5 percent. Comparable sales decreased 0.2 percent at Stop & Shop and 0.4 percent at the local Giant chain. The bright spot of Ahold's U.S. operations has been Pennsylvania's Giant-Carlisle chain, where comparable store sales rose 7.3 percent.

Still, some analysts seem dubious whether Centaurus and Paulson's efforts will be successful. Jaime Vazquez of J.P. Morgan wrote in a research report yesterday that the estimated price of $11.45 per share seemed high. He also noted that Ahold is about to embark on a value improvement program at Stop & Shop and Giant, one of the company's biggest initiatives in recent years that will lower prices and rely heavily on private-label brands.

The plan is scheduled to be rolled out this fall. The company has also begun remodeling its stores, including opening a new Giant prototype in Delaware.

"Altogether, we think that shareholder activism from Centaurus can only help the share price in the short term," Vazquez wrote. But "the upside from any change in strategy is, we believe, much more modest than Centaurus and other commentators seem to assume."